Marriage: now even more taxing

New rules will raise tax bills for many high-earning couples

By

JonnelleMarte

There are plenty of money matters for couples to consider before tying the knot, from figuring out how to pay off debt to where to spend all their hard-earned cash. Starting this year, many higher earners can add one more discussion to that list: taxes.

Marriage now even more taxing

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There are plenty of money matters for couples to consider before tying the knot. Starting this year, many higher earners can add one more to the list: taxes. Jonnelle Marte discusses on The News Hub. Photo: Getty Images.

The so-called marriage penalty, the unfortunate scenario that causes some married couples to end up paying more taxes together than they would as individuals, has been around for decades. But thanks to new tax changes from the last-minute fiscal-cliff deal in January, as well as the health-reform law that took effect this year, that penalty has increased dramatically for many taxpayers. For two people earning $400,000 or more each annually, their tax bill could increase by more than $30,000 after getting hitched, according to estimates from the nonpartisan Tax Policy Center based in Washington. “You’re better off not being married in a lot of cases,” says Roberton Williams, an economist with the Tax Policy Center, which just updated its marriage penalty calculator to reflect the recent tax changes. See the calculator here.

The biggest change comes from a new 39.6% top tax bracket created by the American Taxpayer Relief Act that was passed in January. The higher bracket affects individuals earning more than $400,000 and married couples filing jointly who earn more than $450,000.

The legislation also impacts those earning considerably less, thanks to a phase-out of personal exemptions and a limitation on itemized deductions for individuals with an adjusted gross income above $250,000 and couples making more than $300,000.

Two single people making $250,000 each would be able to take their full personal exemptions, which reduce a person’s taxable income, but married they would completely lose their exemptions, raising their tax bills by more than $1,500 for each family member, says Williams.

The limits to itemized deductions could cost those same newlyweds another $2,376. And two new taxes created by the Affordable Care Act that are kicking in this year — including a 0.9% tax on earnings above $200,000 for singles and $250,000 for couples and a 3.8% tax on investment income over that threshold — could lead to up to $5,700 in additional taxes for two people earning $200,000 each.

For many couples, getting married actually leads to a lower tax bill, especially when one spouse earns much more than the other. That’s because getting married may push the higher-earning spouse into a lower tax bracket. And many couples will be below these new thresholds even after they wed.

Some couples may also be able to offset or avoid some of these potentially higher taxes. For starters, people who may see their itemized deductions shrink after a wedding next year should “take advantage of those full deductions now,” says Ryan Losi, executive vice president of Piascik, a regional accounting firm based in Glen Allen, Va. Some people can make mortgage payments to claim larger mortgage interest deduction, for instance, or make medical purchases this year that might otherwise wait until next year in order to claim a bigger health deduction.

Another option for married people nearing one of these income thresholds is to push income into a future year. Some people might be able to delay bonuses, and small-business owners can consider not billing some clients until next year, says Losi. And of course, some couples might find some tax relief later in their relationship — but lower income — if one spouse stops working or starts working part-time.

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